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Credit Suisse Investment Outlook for 2022

Outlook 2022
The great transition.
Investment ­Outlook 2022
The great transition.
Find out more
Investment Outlook 2022
Transition in progress
The post-COVID decade
Regional outlook
Main asset
Letter from the CEO
Dear reader
Review of 2021
Core views 2022
Fixed income
Real estate
Hedge funds
Private markets
Supertrends in the post-COVID era
strategy 2022
Investment strategies for 2022
Letter from the CEO
From my
Over the past years, and particularly in 2021, we have seen
the critical importance of protecting the planet as well as
small businesses, employees and those most vulnerable in our
societies. Looking ahead to 2022, banks like Credit Suisse
continue to play an important role in supporting their clients
through the economic recovery in a post-pandemic world.
As you will read in the pages ahead, we believe that
the post-pandemic normalization will be different
from past crises. Logistics network issues and disruptions should gradually be resolved, however, helping
to alleviate inflation in some categories of goods.
Yet we will likely see significant structural challenges
over the next decade and beyond, including continued aging populations and the shift to a lower
carbon footprint. We are, in other words, at the
beginning of a great transition.
Our new strategic vision for Credit Suisse underscores our commitment to accelerating this change
with differentiated innovation, operating with agility
and building growth for businesses, investors and
entrepreneurs. In this context, our Credit Suisse
House View is essential in that it anchors the advice
and investment insights as well as attractive investment solutions we bring to our wealth management
clients globally.
I wish you a healthy and prosperous 2022.
Thomas Gottstein
Thomas Gottstein
CEO Credit Suisse Group AG
Dear reader
The great
The year ahead is going to see the start of a meaningful
economic and financial transition. A transition not just to
a post-COVID reality, but also to more normal monetary
policy, and to more moderate returns on financial markets.
Importantly, it is also a transition to a stronger focus on
sustainability, as the world moves toward net zero emissions.
Two years since the coronavirus first emerged, the
world is still looking for an exit from the pandemic.
Indeed, the past year has been marked by important
steps toward normalization – including the rollout of
vaccination campaigns and related loosening and, indeed, elimination of restrictions in many parts of the
world – as well as setbacks, as the spread of the Delta
variant slowed the pace of economic recovery in
some regions. Though COVID-19 now seems more
under control, some parts of the global economy
such as labor markets have yet to recover fully. Looking
at the year ahead, we believe global growth should
remain solid, driven by many of the same factors that
supported the recovery in 2021.
From an investor’s point of view, 2021 has proven to
be rewarding, with equity markets again generating
double-digit returns. Earnings growth has been strong,
with MSCI AC World earnings even surpassing
pre-pandemic highs. We believe that earnings should
remain the key driver of equity returns in the year
ahead, enabling equities to deliver sound, though
somewhat lower, single-digit returns. Since fixed
income as an asset class continues to deliver only
meager returns, we believe investors should look
to investment strategies that follow non-traditional
patterns to diversify their opportunity set further.
In the pages ahead, we not only look at the opportunities and risks investors may encounter in 2022.
We also touch upon the increased focus on environmental, social and governance (ESG) topics that we
expect to continue to influence companies and the
investment outlook in 2022. In this context, we highlight key ESG trends that investors should follow in
2022. After all, we remain convinced that they have
a clear role to play in the transition to a more balanced
and sustainable world.
This is where our long-term investment themes, the
Supertrends, come in. Earlier this year, we paired
some of the subthemes we capture in our Supertrends
with the United Nations’ 17 Sustainable Development Goals (SDGs). In our view, the global pandemic
has heightened the importance of the SDGs in that
they can serve as a guiding principle for future economic activity and development, as well as government cooperation and international relations. It is vital
that we recognize this guiding principle also as
As we all continue the great transition going into
2022, I hope our insights and guidance provide an
essential compass for your road ahead.
Michael Strobaek
Michael Strobaek
Global Chief Investment Officer
Review of 2021
2021: Looking for the
exit from the pandemic
MSCI AC World price index
18 February
US labor market
US jobless claims unexpectedly jump,
pointing to an incomplete recovery of both
the US labor market and economy.
05 January
US elections: Georgia runoff
The US Senate runoff election in Georgia
attracts international attention because
of the high political stakes. The Democrat
candidates ultimately win, handing the
Democrats control of the Senate.
23 July
European Central Bank meeting
The European Central Bank (ECB) announces that
it will keep both the Pandemic Emergency Purchase
Programme and interest rates unchanged.
26 February
Rising bond yields
US Treasury yields reach about 1.5%, the
highest level since the start of the COVID-19
pandemic, weighing on equities.
02 September
Market high
S&P 500 reaches an all-time
high of 4536.95 points.
26 July
China’s new education regulation
China’s regulator announces
new rules for private education
firms, sending Chinese equity
markets lower.
16 June
US Federal Reserve meeting
The US Federal Reserve (Fed) adopts
a relatively hawkish tone at its meeting,
commenting on potential interest rate
hikes and its increased headline inflation
08 September
China property sector woes
Reports emerge that a major Chinese property
developer might suspend its loan interest payments.
21 September
Troubles for property
developer in China
The troubled Chinese
property developer
misses its loan payment.
11 March
Economic relief bill in the USA
US President Biden signs a
USD 1.9 trillion COVID-19 relief bill.
20 January
US presidential inauguration
Joe Biden is inaugurated as the
46th president of the USA.
19 August
Tapering fears
Financial markets, especially in Europe,
fall due to fears of tapering as the Fed
signals it could start reducing the pace
of asset purchases.
23 March
Trade disruption
A massive container ship runs
aground in the Suez Canal,
disrupting global trade.
29 January
Volatile markets
A volatile week for US equity
markets amid a trading frenzy
of shorted stocks.
1st quarter
19 July
Delta variant
Amid concerns that the global spread of the new,
more infectious Delta variant of COVID-19 would
lead to slower economic growth, the Dow Jones
Industrial Average drops 700 points.
12 May
US inflation jumps
The US consumer price index
(CPI) posts its sharpest
increase since 2008, rising
4.2% year-on-year.
01 March
Stock market rebounds
The S&P 500 posts its best
session since June 2020,
lifted by a retreat in bond yields
and the ongoing economic
06 November
The Bipartisan Infrastucture Deal
USD 550 billion: A once-in-a-generation
investment in US infrastructure.
27 August
Jackson Hole Symposium
Financial markets perceive
US Federal Reserve Chairman
Jerome Powell’s speech at the
Jackson Hole Symposium as
relatively dovish.
07 April
Vaccine rollout
COVID-19 vaccination campaigns start to
be rolled out globally amid rising cases.
12 November
COP 26 in Glasgow
Closes with “compromise”
deal on climate.
19 March
US-China talks
The Biden administration holds its
first high-level talks with China.
28 January
“Short squeeze”
GameStop share
prices drop due to
brokers temporarily
restricting trade.
03 November
Fed to start tapering
The US Federal Reserve announces
that it will start tapering the pace of its
asset purchases in November 2021.
04 October
OPEC meeting
OPEC+ decides to leave unchanged its
existing plan for an increase in oil output,
increasing production by 400,000 barrels
per day in November.
27 September
German elections
Federal elections in Germany mark the end
of Angela Merkel’s years-long tenure as chancellor.
The Social Democratic Party (SPD) narrowly takes
the largest share of votes and enters into
discussions with possible coalition partners.
20 September
Electricity prices surge
Gas rally sparks power price surge,
especially in the UK.
2nd quarter
3rd quarter
4th quarter
Core views 2022
Credit Suisse
House View in short
Economic growth
Fixed income
Global economic growth looks set to be above
trend again in 2022. As social distancing rules
are relaxed further, consumption of services such
as restaurants or travel should pick up, supporting the services part of the economy. Strong goods
demand should result in a pickup in production
once supply chain problems start to ease. As a
result, industrial production looks set to increase
as well.
Government bond yields will likely deliver negative
returns in 2022. In credit, low spreads – both
in investment grade and high yield – will barely
compensate for the risks that come with higher
yields. In general, we prefer to avoid duration risk.
We favor Eurozone inflation-linked bonds and
prefer senior loans due to their floating rate
Demand within cyclical sectors is set to remain
firm, but supply should improve and ease some
of the shortages in physical spot markets. Energy
markets are likely to face high volatility through
the winter months, but this should moderate further
into 2022. The price of carbon will stay a key
topic, while gold may be vulnerable as policy
normalization begins.
Real estate
In 2022, inflation should normalize from the elevated numbers of 2021, though it will likely remain
above pre-pandemic levels. The steep price
increases that immediately followed the COVID-19
lockdowns will fall out of inflation calculations
(fading base effects) and supply chain problems
should also ease – resulting in gradually declining
inflation pressures as the year 2022 progresses.
We foresee attractive returns from global equities
in 2022 with earnings remaining the key driver.
We expect equity segments that lagged the global
recovery from the pandemic shock to emerge as
bright spots alongside industries that benefit from
secular growth trends.
We expect real estate investments to deliver
positive mid-single-digit returns, benefiting from
the historically low interest rate environment, as
well as the continuing economic recovery. We favor
sectors underpinned by secular growth drivers
including logistics real estate, as pandemic-driven
structural shifts persist.
Interest rates
Foreign exchange
Private markets and hedge funds
Given the ongoing economic recovery, both the
European Central Bank (ECB) and the US Federal
Reserve (Fed) are likely to reduce their asset purchases as 2022 progresses, with the Fed moving
faster than the ECB. We expect the Fed to start
hiking rates in late 2022, but we expect the ECB
to keep rates unchanged. Monetary policy should
stay unchanged in Japan and Switzerland during
this period. In the UK, where inflation is a bit
stickier than in the rest of Europe, we expect the
Bank of England to start hiking rates in December
2021, followed by two more hikes in 2022. We
also expect rate hikes in certain emerging
markets, including Brazil.
The USD should be supported by the Fed’s policy
normalization path, particularly against the CHF
and JPY. EUR/USD should remain soft in early
2022, but later stabilize as Eurozone fundamentals improve. Emerging market currencies should
witness more differentiation in terms of performance, with the RUB supported by domestic
rates, while the CNY will likely be range bound
as policy risks persist.
The economic backdrop remains supportive for
private markets, while investment conditions
are more competitive. We highlight opportunities
underpinned by secular growth and market
dislocations. In hedge funds, market conditions
are likely to stay supportive for lower market-beta
strategies and yield alternative investments.
Global economy
Transition in progress
The global pandemic is not yet over but vaccinations have helped
bring back some normality to everyday life. Although the rapid
spread of the COVID-19 Delta variant slowed the pace of economic
normalization in some places in 2021, the recovery should
continue in 2022 with expected above-potential growth in global
gross domestic product (GDP). That said, the post-pandemic
normalization will be different from past crises. A recession
like no other will bring a unique recovery. In summary, there is
much more to learn about the pandemic economy in the coming
The last two years have been extraordinary – not
only for humanity but also for the global economy.
Despite the fact that the COVID-19 pandemic now
appears more under control thanks to vaccination
programs, parts of the global economy, e.g. labor
markets, have yet to stage a full recovery. Business
as usual remains unusual – and will stay so for the
foreseeable future.
When COVID-19 evolved into a global pandemic
in 2020, the ensuing lockdowns sent the global
economy into the steepest recession on record. This
unprecedented shock led to extraordinary fiscal and
monetary support, which helped to trigger a sharp
recovery. However, the size of the economic shock
resulted in unrecognizable data and a “data fog,”
which made it difficult to interpret and even more
difficult to forecast, leading to a wide dispersion in
views among investors. In the USA, labor market
statistics like initial jobless claims rose to levels
previously unthinkable, while in financial markets,
oil prices briefly turned negative, to name just two
The recovery from the crisis continued into 2021,
driven by strong stimulus effects and pent-up demand.
Inflation rose as well – in part due to so-called base
effects, i.e. the data fog issues, as well as ongoing
supply chain issues, i.e. shortages of goods ranging
from computer chips to softwood lumber that were
caused by COVID-19 related closures of factories and
ports. Toward the end of 2021, some central banks
had enough confidence in the economic recovery to
start reducing some of the emergency stimulus by
slowing down asset purchases (tapering). In 2022, we
expect a reduction in the data fog as economic
activity further normalizes. However, not all features
of the pandemic economy will be transitory. In our
view, the coming year will be more “normal” than 2021,
but with plenty of special factors still at work. We
believe that the economy that will ultimately emerge
from this crisis will be profoundly different from
2019, with the most important changes likely to be
unrelated to the pandemic.
Find out more
Global economy
Transition in progress
Solid growth despite supply chain challenges
In terms of economic growth, 2022 looks set to be
a good year, driven by the same factors that already
supported the economic recovery in 2021: solid
demand, a still supportive fiscal and monetary policy
environment and the continued relaxation of
COVID-19 related restrictions that will help industries such as tourism and travel. We expect the
global economy to grow by 4.3% in real terms in
2022. This is less than the 5.8% we expect for
2021 but higher than the growth rate before the
pandemic. For example, the global economy grew
by 2.7% in 2019.
As a result, inventories throughout the global
economy have been drawn down. Some of these
shortfalls in production are related to COVID-19
measures and are likely to improve as restrictions
are lifted. Others look set to persist in 2022,
particularly those that require new business investments (i.e. factories) to ramp up production such
as computer chips. Labor shortage issues, such as
the lack of truck drivers that is causing problems
in the UK, will likely remain a challenge in the
coming year. Overall, however, we expect supply
chain issues to be less of an acute problem in
2022 than in 2021.
Global industrial production (IP) looks set to improve.
The unprecedented boom in goods spending during
the recovery has been fueled by diverted income that
would have usually gone into services but did not due
to COVID-19 restrictions on sectors such as tourism
and restaurants, sufficient stimulus to lift disposable
income despite falling labor income, and unusually
high demand for some goods such as electronics.
During the 2020 recession, IP fell more than total
goods demand, and production always lagged behind
consumption throughout the recovery.
While IP is one side of the recovery story, the larger
part of the global economy consists of services.
Services spending has not fully recovered because
social distancing continues to affect many sectors,
including restaurants and tourism. Alongside the
overall recovery of the economy, services clearly
improved in 2021 and we think the recovery is
likely to continue in 2022 as more restrictions
are lifted. We therefore expect services to grow
faster than the overall economy in 2022. The good
growth prospects for both IP and services mean
that the global economy should be able to digest the
gradual withdrawal of emergency fiscal stimulus
(e.g. special unemployment benefits or furlough
schemes) and central bank support.
US inflation – Fading base effects at work
In %
CS projections
Inflation: Leveling off but still elevated
The acceleration of inflation was one of the key
themes of 2021. The pandemic initially acted as a
strong deflationary shock. Many prices initially fell
(e.g. West Texas Intermediate crude futures briefly
turned negative for the first time in history in April
2020). Fearing a deflationary spiral and depression-like conditions similar to the 1930s, policymakers
reacted swiftly and forcefully, ushering in monetary
and fiscal stimulus of unprecedented size. These
reflationary policies helped to put the economy back
on track. In turn, the strong goods demand coupled
with pandemic disruptions that overwhelmed many
supply chains have led to sharp increases in core
goods inflation. We estimate that global inflation
rates – being a measure of the change in prices –
increased by 3.5% in 2021.
The rate of change in price levels should start to peak
going forward. This is because much of the initial
recovery in prices is now behind us (i.e. base effects
are fading), while there should be fewer supply chain
disruptions ahead. However, other factors will likely
prevent inflation rates from falling all the way back
to pre-pandemic levels. One of these factors is the
tightness of labor markets. The economic recovery
in 2021 helped to bring back many jobs, and unemployment rates in many countries are close to levels
prior to the pandemic. With the expected recovery in
the services economy in 2022, we think the labor
market could quickly become tight, with demographics
exacerbating the issue in many countries. In fact,
we already see labor shortages in everything from
bus and truck drivers to substitute teachers and
restaurant workers. Tight labor markets should improve
the bargaining power of workers in wage negotiations. Consequently, while we expect inflation to decline as the year 2022 progresses, this should ensure
that the annual average rate of inflation stays elevated
at 3.7%. In 2019, global inflation stood at 2.5%.
Inflation makes a comeback
While we expect that the recent surge in inflation will prove a largely transitory event, it could prove stickier in some
categories in the longer term, namely shelter and wages.
US Consumer Price Index: September 2020-September 2021 *September 2021 – 12-month moving averages of median wage growth, hourly data
Car and truck rental
Used cars and trucks
Hotels, motels (and other lodging away from home)
Airline fares
*Nominal wage growth of individuals
Core PCE YoY
Headline PCE YoY
Last data point 09/2021
Source BEA, Credit Suisse
Inflation is likely temporary
Inflation could be longer lasting
Source US Bureau of Labor Statistics; Federal Reserve Bank of Atlanta
Global economy
Transition in progress
To hike or not to hike?
With inflation in many regions likely to remain above
central banks’ targets in 2022 (we forecast, for
example, inflation rates of 4.5% for the USA and
2.8% for the Eurozone), one of the key questions
will be how central banks will respond. During the
pandemic, all of the major central banks implemented significant asset purchasing programs (quantitative easing) to supply financial markets with
ample liquidity and keep financial conditions supportive for the economic recovery. We believe that
many central banks will start reducing their asset
purchases before they turn to hiking interest rates.
Indeed, several central banks, including the US
Federal Reserve (Fed) started to do just that in
late 2021. In their communications, central banks
have made it clear that any reduction in their asset
purchase programs will depend on the economic
data, and they will carry it out in a way that will
not threaten the economic recovery. High (but falling)
core inflation and strong progress toward full
employment in 2022, amid market expectations of
imminent tightening, is likely to deliver one rate hike
from the Fed by the end of 2022. In the Eurozone,
the European Central Bank (ECB) is likely to end its
Pandemic Emergency Purchase Programme (PEPP)
in June 2022, in our view, but it should continue to
buy assets throughout the year through more conventional programs. The situation is slightly different
in the UK. In the UK, where inflation is a bit stickier
than in the rest of Europe, we expect the Bank of
England to start hiking rates in December 2021,
followed by two more increases in 2022. In summary, we will likely see some rate hikes in selected
countries, but we expect the Fed to only hike once
while the ECB sticks to reducing asset purchases
and leaves interest rates unchanged for the time
The impact on financial markets
As inflation rates level off, and central banks reduce
asset purchases and increase rates, real interest
rates (nominal interest rates minus inflation) could
rise in 2022. Rising real interest rates usually mean
that financial market returns (notably bond returns)
will likely be lower, while financial market volatility is
usually higher. Rising real interest rates also negatively affect the ability of governments and households to service their debt, which is why central banks
will closely monitor this development and make sure
it remains manageable.
Overall, we believe that 2022 will be a year of recovery and transition from the pandemic. Growth looks
set to stay quite robust and labor markets should
tighten. A slight increase in real interest rates and
ongoing – although less severe – supply chain
problems are risks that could lead to financial market
volatility and need to be carefully monitored by
policymakers and investors alike. Nevertheless, it is
very likely that 2022 will be a much more normal
year than 2020 and 2021. That said, longer-term
factors such as climate change, shifting demographics and new technologies mean that we will be
transitioning toward something new in the postCOVID world. Overall, 2022 will mark the start of a
transition to the post-COVID decade.
The post-COVID
In many respects, the COVID-19 pandemic was an unprecedented
shock to the global economy that led global policymakers and
businesses into uncharted waters. While many elements of this shock
(e.g. the lockdowns) are clearly temporary, others (e.g. the substantially
increased levels of government debt) look set to be of a longer-lasting
nature. At the same time, important trends such as climate change
and shifting demographics have reached a level of urgency that could
very well result in a permanent change of the current economic order.
So what could the new “normalized” post-pandemic
world economy look like? In our view, the future will
be shaped by new factors including: shifting demographics; more state capitalism; expensive problems
like the energy transition; and new disruptive technologies. In terms of demographics, we have now
reached a situation where the working age population in most parts of the world except Africa is stagnating as populations age. This should lead to tighter
labor markets, providing workers with more bargaining power that could lead to increased wage
growth. As a result, companies are likely to step
up investments in automation and other measures to
boost labor productivity.
Looking at the labor market in more detail, many
middle class jobs in developed markets have vanished
over the last 20 years, while there has been a simultaneous increase in both high- and low-paying jobs.
This has led to an increase in wealth and income
inequalities, which governments are likely to address by redistributing income through new taxes or
new regulations. We already see this trend today in
China, where the government has adopted a set of
new “common prosperity” policies, effectively changing priorities from a growth-first mindset toward
one of increased equality. We see similar developments in developed countries including the USA,
which could lead to increased state capitalism, i.e.
government involvement in business.
Global economy
The post-COVID decade
Additionally, policymakers will have to deal with “expensive problems.” An aging population’s rising health
expenses, the energy transition toward renewables and
developed countries’ long overdue infrastructure
overhaul are just a few of the most pressing examples.
All these topics require substantial investments at
a time when government budgets are already under
pressure. Worryingly for governments, strained budgets could also limit their ability to smooth out future
economic downturns.
If there is good news, it is likely on the technological
frontier. New technologies such as quantum computing
or Blockchain applications could help to address
some of these problems while simultaneously putting
pressure on traditional business models. For example,
Blockchain technology could revolutionize payment
systems, as well as banking and wealth management.
Overall, we think the “normalized” post-pandemic
world will be one where economic growth will be
more erratic and volatile but not necessarily lower or
higher than before. We expect a return of the
economic boom-bust cycles of the past. We are
likely to see an unwinding of liberal policies such
as free trade and low corporate taxes. Instead, new
regulations and taxes and increased income redistribution could lead to a less steady business climate
and add to the economic volatility. As a result,
inflation is likely to be higher than it was over the
past 20 years, but hyperinflation seems unlikely.
Investments in climate measures, automation, infrastructure and new technologies could lead to a
meaningful increase in labor productivity but also to
increased government debt. Banks are likely to
help finance government deficits by holding more
government bonds. At the same time, Blockchain
technology and central bank digital currencies are
likely to transform the financial industry to its core.
In terms of political developments, the rivalry between
the USA and China looks set to stay firmly in place,
while the political divide in Western Economies could
deepen further. In summary, the next decade will
be marked by the end of the “Great Moderation” of
recent decades, with 2022 being the year where
the first developments become visible.
Demographics – No easy fix
for labor shortages
Working age population in millions by region
We expect a return of
the economic boom-bust
cycles of the past.
North America
Other developed markets
Rest of Asia
Latin America
Last data point 31/12/2020
Source United Nations
Global economy
Regional outlook
Regions in focus
Shifting to a lower gear
We expect real GDP growth of 3.8% in 2022,
but a halting services rebound and ongoing
supply chain issues are complicating the final
stages of the pandemic recovery. Inflation is
expected to slow to 4.5% after an extreme spike
earlier in 2021, but risks remain to the upside.
Find out more
Global supply chain shocks could lead to more
strength in goods prices in the near term, and
lead indicators for shelter inflation have picked
up significantly. The Fed is beginning to gradually remove accommodative policies. Tapering
of asset purchases will begin in mid-November
2021 and continue into the middle of next year.
High (but falling) core inflation and strong
progress toward full employment in 2022, amid
market expectations of imminent tightening, is
likely to deliver one rate hike from the Fed by
the end of next year. In terms of politics, the
Biden administration’s infrastructure package
will support growth in 2022. There could also
be renewed political gridlock ahead if Democrats lose the midterm elections in 2022.
Find out more
Same, but different
A successful vaccination program appears to
have contained the health crisis in the Eurozone.
The economy has reopened and is growing
quickly but continues to lag developments in
the USA. Supply chain problems are restraining
industrial output, which we expect to surge once
those issues are resolved.
In the meantime, they are causing a sharp rise
in headline and core inflation. The ECB should
pare back its asset purchase program in the
coming months. Sustained high inflation and
looser fiscal policies could lead to hawkish
guidance on rates beyond next year.
Latin America
Losing steam
We project that real GDP in Latin America will
grow at an annual average rate of 1.8% in 2022
following 6.4% growth in 2021. While this represents a significant slowdown, growth remains
above pre-pandemic levels of 0.7% in 2019.
We forecast annual regional inflation at 10.3%
in 2022, with higher commodity prices, supplyside bottlenecks and FX pass-through being
the main drivers. As of late September 2021,
approximately 60% of the population in the
countries under our coverage had received at
least one COVID-19 vaccine dose.
Generally, growth rates look set to diverge
across the region: Colombia, Peru and Mexico
should exhibit the strongest growth rates, while
Brazil looks set to lag the region due to strong
monetary tightening and the uncertain political
Bank of England on track
to hike rates twice in 2022
The UK recovered at an impressive pace in
2021, as the quick vaccine rollout allowed for
most pandemic restrictions to be eased. However, there are signs that growth is losing
momentum. We expect real GDP growth of
5.0% in 2022 versus 7.0% in 2021. Some
of this slowdown was expected as the initial
boost from the reopening fades. However,
labor shortages and supply bottlenecks are
also causing a loss of momentum in the
A fresh start?
Japan went through a leadership change in
2021, and the new cabinet has quickly started
to work on a new stimulus package to support
the economic recovery. This stimulus package
could come into effect as soon as January
2022. We anticipate the total size of the package
will likely amount to JPY 20–30 trillion, including
provisions for future use. Small businesses in
the services sector, low-income households,
medical and pharmaceutical industries, agriculture and fishery industries, the tourism
industry and local governments with weak financial positions will be the main targets of subsidies and credit enhancing measures. Money
will also be set aside for aid to the renewable
energy sector and nuclear power generation.
The majority of measures to be included in the
supplementary budget will be extensions and
expansions of existing ones, which lack fresh
recovery, along with a record rise in firms’ costs.
While some factors causing labor shortages like
COVID-19 self-isolation rules should unwind,
Brexit could lead to a permanent decline in the
labor supply. While demand should continue to
be supported by the reopening of the economy
and the high share of consumer savings, we
think that higher inflation, the end of the furlough scheme in September 2021 and the
withdrawal of other fiscal support measures
are likely to weigh on consumer and business
spending. Inflation is expected to remain above
target due to rising energy and food prices, higher
goods prices due to supply bottlenecks, rising
services prices due to the reopening and the reversal of value-added tax cuts. Given the persistence of above-target inflation and the Bank of
England’s hawkish rhetoric of late, we expect the
BoE to start hiking rates in December 2021,
followed by two more increases in 2022.
Find out more
Consequently, we do not anticipate that
demand for goods will flatten meaningfully until
mid-2022. However, there could then be quite
a steep slump due to the future threat of
saturation and the possible destocking on the
part of companies. As is the case in most
economies, consumer price inflation accelerated over the summer.
However, it remained well within the Swiss
National Bank’s definition of price stability. As a
result, we expect the SNB to maintain its
expansionary monetary policy. We forecast real
GDP growth of 2.5% in 2022 versus 3.5% in
2021, while inflation should remain unchanged
in 2022.
Common prosperity and net-zero emissions
For most of 2021, China saw a strong recovery
in growth before experiencing a renewed slowdown due to problems in the real estate sector
as well as regulatory change and policy reforms.
Authorities aim to gain regulatory oversight
and control of the most valuable assets of key
growth sectors. The real estate market is
among the targeted sectors. While we did not
anticipate that one of China’s largest property
developers would face possible default, we do
not see a crisis in the real estate market over
the next 6–12 months.
ideas to boost demand. Another area of focus
after the leadership change will be national
security and defense. The geopolitical environment surrounding the country is changing rapidly,
and the new government may decide to increase fiscal spending on national security substantially. We forecast real GDP growth of 1.7%
in 2022 from 2.0% in 2021, and inflation of 0.5%
in 2022 versus -0.2% in 2021.
Find out more
Supply issues slow the recovery
Leading indicators continue to point to solid
growth in the coming months, while a decline
in the unemployment rate should support consumer spending. Furthermore, elevated domestic demand for goods will now likely persist for
longer than we had previously forecast as a
result of various supply delays.
In terms of politics, the formation of what is expected to be a center-left led government in
Germany may support making the EU Recovery
Fund a permanent fiscal mechanism. So there
is scope for a material step forward in European
integration next year.
The Chinese authorities have already reacted
to the solvency risks in the property market to
prevent wider contagion. In the long run, however, demographic trends will likely apply downward pressure on housing prices, which could
fall faster than expected. In terms of consumption, we expect the household consumption
recovery to lag behind, weighed down by the
recent regulations and the fact that households’ debt service ratio is already at the high
end – around 32%, based on our estimates.
Inflation pressure is building in China on the producer price index (PPI) front but the passthrough
to the consumer price index has been limited.
Finally, China has unveiled an ambitious net-zero
emission target by 2060. We expect it to have a
very limited (negative) impact on 2021 GDP, while
the medium-term impact depends on authorities’
chosen strategies ( e.g. whether they choose to
reform electricity prices or allow sustainable
energy to be used alongside the current energy
infrastructure ), which could either boost or
weigh on growth.
Special topic
Pandemic sharpens
investors’ focus on
The increased focus on environmental, social and governance (ESG)
themes in 2021 will continue to influence both companies and the
investment outlook in 2022. Shareholders, employees, regulators and
ESG activists are holding companies to account, and this engagement
shows no signs of abating. We summarize key ESG trends that investors
should follow in 2022.
1. Climate change and biodiversity loss –
An end to business as usual
Many investors will have heard of the Conference
of the Parties (COP) 26, the United Nations’
climate summit that was held in Glasgow in
November 2021. Fewer investors will be familiar
with the COP 15, the two-part UN biodiversity
summit, which kicked off in October 2021 and
is slated to finish (COVID-19 permitting) in May
2022. The outcome of these two COPs will be
to set the environmental agenda for the years
to come. While metrics like a carbon footprint
for climate change are now widely reported,
investors are still struggling to find meaningful
metrics by which to compare companies on
the more complex subject of biodiversity. As a
result, the onus is on companies to demonstrate
how their businesses are adapting to this new
reality. Food and agriculture companies, which
sit at the intersection between climate change
and biodiversity loss, are likely to experience the
greatest scrutiny.
Yet even in the absence of meaningful government action on the climate front to date, investors
should expect an end to business as usual. In
2022, levels of carbon dioxide emissions in the
atmosphere are expected to reach a dangerous
milestone: a 50% increase compared to pre-industrial levels.1 At the same time, ecosystems are
now losing species at rates not seen since previous
mass extinction events, and are currently estimated to be between 100 and 1000 times greater
than pre-human levels.2 On a global scale, these
changes pose material risks for companies and
investors in terms of disrupted supply chains,
lower crop yields and greater food price volatility.
Investors should thus seek out companies that
are able to manage these risks, as they are
likely to outperform in the long term.
Met Office: Atmospheric CO 2 now hitting 50% higher than pre-industrial levels, (Carbon Brief, 2021).
Extinctions during human era one thousand times more than before, (ScienceDaily, 2014).
Cybercrime To Cost The World $10.5 Trillion Annually by 2025, (Cybercrime Magazine, 2020).
Cybercrime To Cost The World $10.5 Trillion Annually by 2025, (Cybercrime Magazine, 2020).
Gartner Forecasts Worldwide Security and Risk Management Spending to Exceed $150 Billion in 2021, (Gartner, 2021).
Solutions that address the twin crises of climate
change and biodiversity loss could lead to a
potentially unprecedented investment opportunity. From climate-smart and regenerative
agriculture to alternative proteins and reduced
food waste, investing in nature-positive solutions could create USD 10 trillion in new business opportunities while delivering up to 37%
of greenhouse gas (GHG) emission reductions
by 2030, according to a 2020 article on the
World Economic Forum website: How investing
in nature can help tackle the biodiversity and
climate crises.
2. Labor markets –
Protecting gig workers’ rights
The gig economy ranges from low-skilled, routine
work right through to highly-skilled workers,
and also includes those working in creative and
digital industries, education (EdTech) and, more
recently, healthcare professionals. At the more
skilled end of the spectrum, competition is fierce
and employers have to pay competitive rates to
secure the skills they need for business-critical
projects or to fill shifts. Done the right way, the
online freelance economy matches talent to labor
gaps, provides transparency and brings certainty that skills are fairly rewarded for workers
who are in high demand. Women have increasingly
turned to the gig workforce for income during
the pandemic. This is because they were overrepresented in industries that were hit hard by
the crisis including hospitality and services, or
they were forced to give up stable jobs to care for
children or other dependents. While gig jobs
provide flexibility and opportunities for marginalized workers, the wages in lower-skilled work
are often low and unstable and there is a lack
of employment protection.
Gig platform companies have generally entered
highly regulated markets. By engaging in regulatory arbitrage through the misclassification of
workers as independent contractors to circumvent employment law, low-skilled gig workers
may be paid less than the minimum wage,
and costs such as insurance and capital expenses
may be borne by the worker. Moreover, these
gig workers may lack standard protections, such
as paid sick leave, holiday pay and pension/
superannuation. Many jurisdictions are introducing regulation to protect gig workers with
the aim of building a more balanced relationship
between the gig platforms and their workers.
Legal and regulatory pressures on the platform
business model will likely continue through
2022, with some companies responding better
than others to the evolving gig environment.
Investors can stay ahead by taking a proactive
stance on robust human rights and improved
disclosure on workplace policies and practices,
which contribute to creating long-term value
and reducing liability, reputational and operational
risks, in our view. In addition to emerging areas
such as EdTech, investment opportunities span
technologies that stand to benefit from an
increasingly flexible working environment, with
cloud, enterprise SaaS (Software as a Service)
and cybersecurity providing exposure to the gig
economy. The gig economy ecosystem also includes new mitigation opportunities for investors,
such as insurtech products that offer innovative
short-term, pay-as-you-go insurance solutions
for gig workers. Adjacent technologies including
innovative payment networks can increase financial accessibility for the underbanked and pay
workers immediately instead of forcing them to
wait for weeks for their paycheck, helping to
improve gig workers’ standard of living.
3. The digital paradox –
COVID crisis a catalyst for opportunities and challenges
While the speed of the recent digital transformation to enable business continuity, remote
working and automation is likely to continue in
2022, digital security will be a high priority as
many sectors, including education, healthcare,
commerce, manufacturing and entertainment,
are transformed by a digital-first approach.
Although cybersecurity has been typically regarded as a technological issue since it protects
systems, networks, software and data, cyber
vulnerabilities are considered to be an existential
business risk that investors should not ignore
and it is managed within ESG as part of the “S”
As the world emerges from the COVID-19 crisis,
however, digital experts are in combat with a
pandemic of a different kind. Cybercrime is predicted to inflict damages of USD 6 trn globally in
2021 from lost productivity, damage and destruction of personal and financial data and theft of
intellectual property3. With reputational harm
and ransomware attacks becoming more prolific
and expensive, damages are forecast to reach
USD 10.5 trn4 in 2025. Breaches and recent
ransomware attacks in diverse sectors have
highlighted the risk of poorly secured infrastructure. Awareness is growing and spending on
cyber resiliency will continue into 2022 given the
risks that firms must manage in this area.
Cybersecurity is becoming an increasingly high
legislative priority; in the USA, there is now
bipartisan commitment for legislation to improve
cyber incident reporting and for funding for
infrastructure projects. In the European Union,
the new Cybersecurity Strategy calls for stateof-the-art cyber defense capabilities to combat
cyberattacks across the region.
Leading companies in this area know that cybersecurity is both a business and a technical issue
and build cybersecurity into their business products, services and processes. The best-performing companies have already increased their
focus on cyber-risk management, skills and infrastructure throughout the organization, including
supply chains, and other companies will follow.
Investors should consider a company’s cybersecurity preparedness as a part of their investment decision, as companies that can manage
these risks are more likely to outperform over
the long term.
Such developments should drive investment
opportunities that arise through new and incremental business for the cybersecurity ecosystem. These include the adoption of a zero-trust
approach, which requires all users both inside
and outside the organization’s network to be
authenticated, authorized and continuously validated before being granted (or keeping access)
to applications and data, as well as embedded
hardware authentication and behavioral analytics.
Moreover, the increasing demand for cloud-based
services across most industry verticals is also
a major driver for the cloud security market, the
fastest growing segment.5 Further opportunities
involve leading vendors focused on assuring cybersecurity hygiene down their hardware and software supply chain and throughout their own
operations, as well as the next generation of
cyber-experienced professionals that are emerging as entrepreneurs from sectors such as
financial services, and governments that drive
innovative start-ups.
Find out more
Special topic
1970 – 2100
Nature conservation
More sustainable production
More sustainable consumption
Increased conservation efforts
Business as usual
Source Adam Islaam | International Institute for Applied Systems Analysis (IIASA); Credit Suisse
Main asset
Main asset classes
Fixed income
Beware of duration risk
within fixed income
Government bond yields will likely move higher on the back of economic
growth momentum and policy normalization in 2022. As inflation rates
slow, we no longer expect US inflation-linked bonds (ILBs) to outperform
nominal bonds, though there is room for Eurozone ILBs to do so. We do
not anticipate a strong performance for either global investment grade or
high yield, while emerging market hard currency bond fundamentals will
likely be less supportive. An interesting alternative to high-yielding credit
in developed markets is global senior loans, which offer attractive relative
The decades-long bond bull market
10-year US Treasury yield, in %
Last data point 22/10/2021
Source Refinitiv, Credit Suisse
Developed markets:
Government bonds remain unattractive
In developed markets, the focus in the coming year
will be on central banks and the prospects for the
unwinding of quantitative easing (QE) and policy
normalization. Some central banks have already started raising interest rates, with Norway and New
Zealand leading the way, and markets expect other
countries to follow. We expect the US Federal
Reserve (Fed) to hike rates once in 2022, followed
by another four hikes in 2023. Overall, government
bond yields should grind higher on the back of economic growth momentum and policy normalization.
Eurozone ILBs could outperform
Inflation expectations in the Eurozone are still at levels
below the target of the European Central Bank
(ECB), and a further rise is possible in early 2022.
This suggests that Eurozone ILBs may have some
potential to outperform compared to nominal government bonds. Within the Eurozone, ECB and
European Union fiscal support continues to help peripheral countries, and government bond spreads
like the BTP (Italy)/Bund (Germany) may further
narrow if the Eurozone fiscal union progresses.
In contrast, current inflation expectations in the USA
reflect the view that inflation rates will slow down
in 2022 toward the Fed’s 2% target. In this scenario,
rising nominal yields would primarily be driven by
real yield increases. As such, US ILBs would no
longer outperform nominal bonds as they did in 2021.
Dim outlook for corporate bond returns
We do not anticipate a strong performance for either
global investment grade (IG) or high yield (HY).
The containment of the pandemic and ongoing recovery of the global economy could support risk
appetite at the same time as the Fed moves toward
normalization. However, the latter could have a
negative impact on credit market performance due
to higher treasury rates. In our view, the current low
spreads in IG and HY suggest that credit performance will be constrained by rising core government bond yields. Moreover, a relatively flat credit
curve points to a potential normalization of credit risk
premiums back to their long-term average (i.e. a
rise in spreads relative to treasuries). Overall, we favor
a short duration positioning into 2022.
Main asset classes
Fixed income
Sovereign emerging market hard
currency (EM HC) bonds lose appeal
We think EM HC bond fundamentals should be less
supportive in 2022, as external balances are unlikely
to improve further and many EM countries have
significantly increased their fiscal spending following
the COVID-19 shock, leading to an increase in
government debt. Higher refinancing needs will likely
put upside pressure on rates because the market will
require a higher premium to buy EM debt. Additionally,
with the Fed tapering in the near term and moving
toward raising rates further out, the return outlook for
EM HC sovereign bonds is set to become more
challenging. Overall, current spreads do not look attractive enough to compensate investors for rising rates
volatility and the risk/reward for EM HC bonds has
thus deteriorated.
At the regional level, we expect low single-digit returns
from Asian HC bonds in 2022. Spreads are likely to
remain stable, as Asian sovereign fundamentals have
been resilient thanks to strong policy support amid
the pandemic. Indeed, Asia’s FX reserves and current
account balances have improved, while external debt
to GDP has seen only a modest rise. As for the rest
of EM, rising US yields and lower carry limit total
return potential. Within Asia, we have a preference
for China. Its lower duration profile is likely to limit
downside risks stemming from rising US Treasury
yields and relative valuations are cheap after accounting for its healthier debt fundamentals. China has
one of the lowest external debt-to-GDP ratios, and
its current account balances have continued to improve over the past two years.
What are senior loans?
In EM, some economic growth moderation, combined with more expensive onshore refinancing
conditions, could limit improvements in both EM
corporate default rates and performance in 2022.
With global government bond yields likely to trend
higher, we prefer to position for the short-duration
segment in EM corporate bonds. Moreover, the combination of higher interest rates and still soft labor
markets in EM could keep wages contained in 2022,
which could lead to lower demand and reduced
implied revenues for EM corporates. This will likely
translate into deteriorating fundamentals, such as
leverage and interest coverage ratios over time. We
are relatively cautious and prefer to position defensively for short-duration EM credit, favoring segments
that offer a balanced risk/reward between value
and default rates, such as Asian crossover credit with
solid credit fundamentals. In summary, while the
outlook for EM sovereign and corporate bonds is
mixed, the wider spread compared to developed
market government bonds could lead to some selective opportunities.
Senior loans are the floating rate debt (the part of
debt where the interest rates are set to a floating
benchmark) of companies that have below IG ratings,
and/or have a high level of contracted or outstanding debt. They are issued to support companies
that are borrowing to make acquisitions, spend on
large capital expansions, refinance and/or increase
existing debt, or make one-time dividend payments
to shareholders. The market perceives these loans to
be more risky given uncertainties regarding the
stability of such businesses, and thus requires a higher
return in the form of fees and the loan spread.
Senior loans typically represent a first lien secured
on a company’s assets in the case of a bankruptcy.
As a result, if a company becomes distressed and
declares bankruptcy, senior loans are typically the first
in line to be repaid before bondholders and shareholders. Although there is no guarantee that the
amount of collateral will be sufficient to pay off a
borrower’s loan in full, the fact that senior loans are
secured by collateral has historically translated into
significantly higher recoveries on defaulted loans in
comparison to recoveries on defaulted high yield
bonds (see chart below).
Senior loans are set up using a written contract (the
credit agreement), which governs the manner in
which funds are extended to the borrower and sets
the interest rate to be paid by the borrower. It also
imposes significant limitations on a borrower’s business operations – measures that are designed to
enhance the ability to repay lenders.
Prefer senior loans
An interesting alternative to high-yielding credit in
developed markets is global senior loans (see page
35 for details). They offer attractive relative valuations and should benefit from a higher government
bond-yield environment, low expected default rates
and rising rating upgrades in 2022.
Indeed, rating upgrades for global senior loans are
outpacing downgrades at the fastest pace since Q2
2012 due to several factors: accommodative lending
conditions for lower-rated issuers; and the reopening
of economies, which paves the way for favorable
rating actions. We anticipate that this trend will continue, especially in cyclical sectors such as electronics and chemicals.
Senior loans have higher recovery rates vs. high yield bonds
If an issuer defaults, how much an investor would recover of their investment for senior loans versus high yield bonds
Per USD 100 Par
US high yield bonds (senior unsecured)
US senior loan, 1st lien
Measured by debt prices which are taken immediately prior to distressed exchanges or
30 days after non-distressed exchange defaults, 3-year average.
Last data point 30/09/2021
Source Moody’s, Credit Suisse
Main asset classes
Fixed income
Technical analysis corner:
Bond yield trends in 2022
Momentum indicators and technical
pattern analysis suggest that we will
see a significant rise in US bond and
real yields during 2022.
Our technical analysts believe that global bond yields are set to
move higher during 2022, based on two key technical factors: the
potential for large technical bases across global bond markets;
and our assessment that the momentum behind the move higher
in yields is picking up again following the summer 2021 bond rally.
US bond yields headed higher
The US 10-year bond yield started to rise again
toward the end of Q3 after an earlier surge in 2021.
This means that a three-year technical base may
be forming, which would have significant negative
implications for government bonds in 2022, in our
view. The key yield level that defines this base is seen
at 1.70%, and if a weekly close above here can be
achieved, which is our base case, we believe this
would provide the platform for a more significant
rise in yields during 2022. The next key yield levels
to watch for the US 10-year bond yield during 2022
are seen at 1.965%/2.00%, then 2.145%/2.16%.
The size of the base suggests that we could even
move beyond these levels later in 2022. Reinforcing
the move higher in bond yields is the reacceleration
of multiple medium-term indicators, including the
moving average convergence divergence (MACD)
momentum indicator, which measures trend strength.
Our own proprietary momentum indicators, which
are based on adjusted moving averages and total
return momentum, among other factors, have also
remained consistently bearish on global treasuries
since Q1 2021 and continue to warn of deteriorating
momentum as we head toward 2022.
In the USA, 10-year US inflation breakevens (marketimplied forecasts for inflation) are unlikely to move
significantly beyond major long levels at 273/278 bp, in
our view, which are the record price highs from 2005
and 2012. We thus believe that rising real yields will
eventually drive most of the move higher in US
nominal yields. This expectation is based on our view
that the US 5-year real yield may be in the process
of constructing a potential “double bottom” base. This
technical pattern occurs after two successive lows
appear at the same level, and in this case would be
confirmed above -1.445%. If this “double bottom”
base can be established, it would confirm a more significant pricing higher of US real yields, in our view.
In summary, momentum indicators and technical
pattern analysis suggest that we will see a significant
rise in US bond and real yields during 2022, which
should lead to weak total returns for government
bonds as an asset class.
UK bonds lead the way
Within core developed markets, UK bond yields have
led the way higher during 2021, and the 10-year
maturity has already confirmed an equivalent multiyear base following a break above long-term yield
resistance levels earlier in 2021. Medium-term momentum is seen even stronger from here, albeit far from
oversold levels. From a technical perspective, we see
scope for 10-year UK bond yields to rise toward
their 2018 high of 1.75% during the course of 2022,
with interim levels seen at 1.375%/1.39%. The
10-year German bond yield would also complete a
similar structure with a move above -.075/-.05%,
suggesting 2022 is set to see a global yield repricing.
European inflation expectations have driven the rise
in European yields during 2021 after surging
throughout the year, with the German 10-year breakeven breaking out of a six-year range earlier in the
year. This marked a regime-changing breakout from
a technical perspective, however the market is
already at the next major resistance levels at 192 bp/
194.5 bp, with scope for some further limited upside
to the psychologically important 200 bp level, where
we would expect European inflation expectations
to hold up better than the US in a high level range.
European inflation linked bonds (ILBs) and their US
counterparts have started to diverge, with European
inflation expectations rising faster than US ones.
In terms of technical analysis, this divergence represents a large top and reversal in relative inflation
expectations between the two regions and we expect
this new trend to persist into 2022.
In summary, fixed income investors should also expect weak total returns from European and UK
government bonds during 2022, with the technical
outlook suggesting ample scope for yields to rise
Main asset classes
Earnings to
drive equities
We expect earnings to be the key driver of equity returns in 2022.
In line with our earnings expectations, we expect high single-digit
equity returns in 2022 compared to double-digit returns in 2021.
Other tailwinds for this asset class going forward include the
ongoing economic recovery, and the “there is no alternative”
(TINA) argument for equities.
“Pricing power” a key topic
The past year has been a rewarding one for global
equity investors as most equity markets and regions
generated impressive returns. Earnings growth has
been very robust, with MSCI AC World earnings surpassing pre-pandemic highs in 2021. This has
driven strong equity returns in 2021, though the priceto-earnings (P/E) ratio declined as levels were
already elevated and investors anticipated that the
extraordinary fiscal and monetary support of the
COVID-19 era would begin to fade (see chart).
Looking ahead to 2022, we expect a year of “normalization.” Economic growth is expected to normalize
in 2022, with the recovery continuing, albeit at a slower
speed and tilted toward the first half of 2022. Household balance sheets remain in good shape. We also
expect earnings to normalize in 2022 after the
significant boost ushered in by the unprecedented
fiscal and monetary stimulus, and a very volatile
period during the initial stages of the COVID-19
Consensus forecasts imply earnings growth in
the high single digits for 2022, which is close to
long-term averages. In our view, the constructive
macroeconomic environment should support revenue
growth. We expect margins to remain at solid levels.
Nevertheless, potential headwinds include rising input
costs due to greater demand and the widening
producer price index vs. consumer price index gap,
which gives companies less room to pass on rising
costs to the consumer. “Pricing power” will thus
become an important topic for equity investors in
2022, i.e. companies that can pass on the rising input
costs to consumers will fare better than those with
low pricing power. We expect high single-digit equity
returns in 2022 compared to double-digit returns
in 2021.
Little room for re-rating
Even though traditional valuations (i.e. P/E multiples)
declined in 2021, they remain at elevated levels
compared to longer-term historical averages. We see
little room for re-rating (i.e. higher P/E multiples), as
we expect that financial conditions, including interest rates, will become somewhat tighter in 2022 due
to rising real yields. We expect the US Federal Reserve
(Fed) to start tapering asset purchases in midNovember, and to complete this process by mid-2022.
Key risks for global equities in 2022
There are a number of risks for global equities in
2022. One risk to earnings (i.e. margins) is rising
input costs, for example for commodities or wages.
Another related risk is further disruptions in supply
chains, a factor that started to weigh on some
companies’ profitability in the second half of 2021.
Inflation was also a risk for this asset class in 2021,
although most market participants expect that the
current elevated inflation levels will be transitory.
However, stickier-than-expected inflation could lead
to tighter monetary conditions and increase the risk
of a policy error – both of which would be headwinds
for global equities. Additionally, we believe there is
less room going forward for fiscal stimulus, which
has been a supportive element for equities during the
COVID-19 crisis. This is because governments will
likely wind down their unprecedented fiscal policy,
and there could also be policy gridlock following the
US midterm elections. A Covid-19 comeback due
to new mutations that make current vaccines less
effective is another risk worth flagging. China also
remains a potential risk for global equities, e.g. due to
a slowing economy and the risk of further regulatory
headwinds as we saw in several sectors in 2021.
Finally, there are several elections to keep an eye on
in 2022, namely the US midterms and the presidential elections in France and Brazil.
MSCI AC World earnings growth –
Earnings per share (EPS) growth expected to normalize in 2022
The E (earnings) outpaces the P (prices)
6.4 %
EPS growth - compound annual growth rate (CAGR) (2010 –19)
-11.9 %
December 2020
MSCI World
12-month forward P/E
12-month forward earnings
February 2021
April 2021
June 2021
Note: Return attribution indexed to 100 as of 31/12/2020
August 2021
Last data point 28/10/2021
Source Refinitiv, Credit Suisse
7.6 %
EPS growth 2020
estimated EPS growth 2021
estimated EPS growth 2022
Last data point 23/09/2021
Source Refinitiv, Credit Suisse
Main asset classes
Sector outlook
Consumer discretionary:
Consumer services preferred
Financials: Higher interest
rates provide boost
One sector we expect to do well in 2022 is consumer
services, which provides exposure to restaurants,
hotels and leisure companies. The sector has lagged
others as lockdowns and other restrictions delayed
the reopening of dining and leisure facilities. We view
this as an attractive opportunity, as we expect services spending/consumption to be a bright spot in
2022. Consumption trends remain supportive on
the back of the pent-up demand for services, an improving labor market and robust household balance
Financials, and banks in particular, are among the
key beneficiaries when yields and interest rate
expectations rise. Increased distributions to shareholders via dividends or buybacks pose another
tailwind for financials, in our view. The sector’s valuation remains attractive and the earnings picture is
IT: Rising real yields
a headwind
Communication services: Growth,
valuation challenges ahead
Materials: Growth
drivers remain in place
Equity styles: Several
potential standouts in 2022
The IT sector benefits from secular growth trends.
Within IT, we expect software and services to do well
as the industry group has a superior earnings
outlook and sturdy cash flow generation. Our expectations for rising real yields is a headwind for the
sector as a whole. In general, this sector has attractive market segments that have the potential to disrupt
and thus have room to expand market share and
profit margins (see pages 56–57 for a description of
our Supertrends long-term thematic investments),
including technology-related industries.
The earnings outlook for communication services is
in line with global equities. The technology/interactive media component of the sector offers attractive growth but is richly valued, while the telecom
sector offers good value but the growth component
is lagging. Furthermore, regulatory issues and
potentially higher taxes remain a key risk and could
have a severe impact, though the magnitude of such
changes is hard to assess.
We expect materials to deliver attractive returns in
2022 due to above-trend global growth and the role
of some metals in the transition to more sustainable
production and consumption (e.g. electric vehicles).
We expect earnings growth to normalize in 2022 as
base effects fade and global growth moderates
from the 2021 highs, though the sector’s long-term
structural growth drivers remain in place.
Utilities: Under
Energy: Full recovery from
pandemic impact
Industrials: Outlook brighter as
world moves toward normalization
For equity styles, 2021 did not display any clear
trends. At the time of writing, only quality and value
gained (slightly) compared to the MSCI World Index.
To some extent, this is a testament to the uncertainty,
varied economic impact and “foggy data” caused
by the global pandemic as the world absorbed and
adjusted to the shock. Going into 2022, we expect
that the growth style in the USA will see renewed
support, along with small caps globally. On the other
hand, we continue to expect that the value style will
do well in Europe. Our views are supported by a constructive economic outlook, with purchasing managers’
indices (PMIs) expected to be expansionary along
our forecast horizon. Additionally, the majority of a
broad set of US indicators continues to support a
constructive macroeconomic environment.
Utilities lagged the global equity benchmark (MSCI
World) in 2021, and is not among our preferred
sectors going into 2022. While earnings expectations
for 2022 have improved, the sector experienced an
earnings decline in 2021 and macro headwinds (e.g.
higher rates/yields) are set to intensify as central
banks prepare to unwind some of their monetary
stimulus measures.
The energy sector posted the strongest earnings
recovery in 2021, with earnings growth expected to
increase by over 100% from the start of the year.
Looking at 2022, earnings are set to stage a full
recovery from the pandemic impact and are projected to be 5% higher than 2019 levels (pre-pandemic),
according to consensus estimates. Despite attractive
fundamentals and high dividend yields as oil prices
recover and cash flow stabilizes, structural headwinds
from the energy transition, as well as environmental,
social and governance (ESG) concerns remain.
Industrials is the most economically-sensitive sector
to global manufacturing and industrial production.
Going into 2022, we expect the global supply chain
pressures to moderate as we move into a “normalized”
world. The sector stands to benefit from the reacceleration in global industrial production momentum
as current inventory levels are very low.
> 100%
Increase in earnings
growth expected in
energy sector in 2021
Healthcare: Challenging
conditions in the short term
Healthcare earnings growth and price performance
lagged global equities in 2021. Consensus earnings
expectations are still below broader global equities
and relative momentum is also weak. At the same time,
long-term growth drivers like better healthcare access
in emerging markets, high operating leverage, low
input costs and an aging population remain intact.
Nevertheless, the increase in yields due to the ongoing recovery of the global economy poses a risk to
this defensive sector.
Main asset classes
Regional outlook
United States of America
Politics and Fed in focus
The outlook for US equities is key for our broader
equity outlook as the USA accounts for 60%
of the MSCI AC World – the global equity benchmark. We expect that monetary policy and
politics will be important drivers of US equities in
2022. The equity bull market could face a
speed bump relating to tapering, but will likely
continue its upward trend, in our view.
Another potential headwind for US equities is
tighter monetary policy and our expectations
for rising real yields. In terms of political events,
the US midterm elections in November 2022
will be in focus. The Democrats face the possibility of losing their (slight) majority in one or both
chambers, which could result in policy gridlock.
We therefore expect less fiscal spending after
the US midterm elections.
Despite these headwinds, we have a constructive
outlook for US equities. The solid earnings
outlook and still benign financial conditions should
support US equities. In addition, the US equity
market has significant exposure to the tech sector
and can therefore benefit from secular growth
Bright outlook
Japanese equities lagged in H1 2021 due to
the delayed rollout of COVID-19 vaccinations
and continued pandemic restrictions. However,
Japan caught up with its developed market
peers in terms of both vaccinations and equity
market performance in H2 2021, as political
changes paved the way for a new administration and potential stimulus. Looking ahead, we
expect Japanese equities to deliver attractive
returns in 2022, as the Japanese economy
fully reopens and drives domestic consumption,
Continued recovery
Going into 2022, the economic outlook for the
Eurozone remains constructive. As highlighted
above, we expect earnings to be the key driver
for global equities, and this is also true for the
Eurozone. The consensus earnings forecast for
the Eurozone is among the highest in the major
developed markets, supporting our constructive
outlook on Eurozone equities.
Emerging markets Asia
We see the biggest upside potential in markets
that have lagged during the post-pandemic
recovery. In terms of politics, the presidential
elections in France will be in focus. A victory
for a euroskeptic president would be a risk for
European integration. It will also be interesting
to see if the eventual coalition that governs
Germany will push for additional fiscal spending
and further European integration, which would
be supportive of European assets.
Developments in China are also important for
Eurozone equities, in particular for French
(e.g. luxury goods companies) and German
(e.g. car manufacturers) equity markets.
Double-digit earnings growth ahead
Asian equities have been under acute pressure
in 2021 due to China’s growth deceleration,
increased regulation for technology stocks and
the fate of a large (troubled) property developer
in China. However, we expect Chinese growth
to stabilize in 2022 and the economy to grow
by 6.1%, as monetary and fiscal policies become
less restrictive.
Simultaneously, the worst impact of the regulatory crackdown on technology stocks
appears to be over, reducing a key risk for the
market. Prospects of a recovery in China
and still healthy growth in developed markets
bode well for regional earnings, which should
grow by double digits in 2022. With the containment of COVID-19, South East Asian
economies should also experience a meaningful economic and earnings recovery.
Currency in focus
Due to its significant exposure to the healthcare
and consumer staples sectors, the Swiss equity
market is seen as a defensive market. This defensiveness can be a headwind or tailwind,
depending on the market environment.
Finally, the shortage of semiconductors should
continue to support growth momentum for
the technology hardware sector. In conclusion,
given expectations of an improvement in the
underlying fundamentals, we believe Asian equities are poised to deliver attractive returns in
Latin America
In 2021, which was marked by the huge
earnings recovery and cyclical markets, Swiss
equities lagged the broader equity benchmark
(MSCI World). As 2022 is the year of
“normalization,” we expect Swiss equities to
perform in line with the equity benchmark.
An important driver for Swiss equities is the
currency, as a stronger CHF acts as a headwind for the export-oriented Swiss equity
market. We believe the Swiss National Bank
will keep a lid on the CHF in the coming year
(see page 46).
Ready to turn the corner
After a weak performance in 2021, we expect
Latin America (Latam) equities to deliver
attractive absolute returns in 2022, accompanied by additional volatility amid heightened
political noise. Latam equities are expected to
benefit from strong global economic growth
and a favorable composition toward cyclical sectors such as financials and materials, which
together represent over 45% of the weighting
in the MSCI EM Latin America.
United Kingdom
Tackling post-Brexit challenges
The UK posted the strongest earnings recovery
in developed markets in 2021. Estimated
earnings per share (EPS) for UK equities for
2022 should show a complete recovery from
the pandemic, and are 4% higher than the
2019 EPS (pre-pandemic), according to
consensus estimates. Despite this positive
trend, however, UK equities have underperformed global equities since 2019.
exports pick up with the easing of supply chain
pressures and strong external demand, while
the outlook is for attractive earnings growth,
more buybacks and supportive policy – both
monetary and fiscal.
As central banks across the region continue to
tighten rates, financials are the prime beneficiaries of rising rates and yields while higher
commodity prices also bode well for the region’s
growth prospects. A high dividend yield of
around 5% is also supportive for total returns
of Latam equities.
However, with seven countries in Latam heading
to the polls, including Brazil, we expect that
political and regulatory developments will likely
remain key risks for the region.
Eastern Europe, Middle East and Africa
This performance has extended the already
significant de-rating (i.e. decline in P/E
multiples) due to Brexit, and the market now
trades at a historically low valuation multiple.
Going forward, the UK heavyweight sectors
that were disproportionately impacted by
lockdown measures should be a major
beneficiary of the “reopening” trade.
UK equity indices also have a lower exposure
to the IT sector and a higher weighting in terms
of financials versus the MSCI World, which
should act as a tailwind in a rising yield environment. We expect UK equities to perform well
in 2022, fueled by earnings growth as well as
some higher valuation multiples. A high dividend yield of around 4% should also prove
supportive for total returns.
Financials, energy
should bolster equity returns
After a stellar performance in 2021, driven by
the solid earnings recovery on the back of the
reopening of the global economy, we continue
to expect Eastern Europe, Middle East and
Africa (EEMEA) equities to deliver attractive
returns in 2022, albeit at a moderate pace.
We anticipate EEMEA earnings growth to normalize in 2022 as favorable base effects fade.
However, we still expect high single-digit earnings
growth, in line with the EM benchmark (MSCI
Emerging Markets Index). Financials, the biggest
sector (around 40% of the weighting in the
MSCI EEMEA), are expected to be the prime
beneficiary of rising rates and yields.
High energy prices would be another favorable
factor for regional economies, especially the
Middle East and Russia, improving their fiscal
picture and finances. As such, we expect
EEMEA equities to remain attractive in 2022
and deliver absolute returns in line with EM
Main asset classes
Tapering – A speed bump or
brake for the equity bull market?
Tapering refers to a reduction in asset purchases by
a central bank. Tapering occurs when central bank
economic stimulus policies begin to wind down. It is
not a balance sheet reduction as central banks will
continue to provide stimulus to the economy but at a
slower pace. As markets grow used to this support,
impending tapering announcements can lead to market
downturns, referred to as “taper tantrums.” The
Fed announced a tapering of its asset purchases at
its November 2021 meeting. US asset purchases
increased the size of the Fed’s balance sheet to 37.5%
of GDP from 19.2% of GDP in February 2020.
In contrast, the same ratio increased to 69.2% from
39.2% in the Eurozone and to 132.8% from 104.7%
in Japan. This excess liquidity coupled with low interest
rates initially helped to calm equity markets following
the COVID-induced shocks, and later fueled the strong
rally in stocks.
An equity correction
due to tapering
could provide a buying
opportunity for
The 2013 taper tantrum
On 22 May 2013, then Fed chair Ben Bernanke
announced the tapering of the Fed’s asset purchase
program, which led to an immediate spike in bond
yields and a drop in equities. This change was limited
to the reduction in the pace of asset purchases –
the paring of the balance sheet only started in 2015.
One month after the May 2013 announcement,
developed market and emerging market equities were
down by -7% and -10%, respectively.
Over the next 12 months, global equities recovered
with a return of 13%, with the USA and Eurozone
driving the positive performance. In another instance
of monetary tightening, the Fed began to reduce
its balance sheet in 2018, which at the time stood
at USD 4.5 trillion. For the next 20 consecutive
months, the Fed reduced the size of assets on its
balance sheet by around USD 700 billion, with an
average reduction of about USD 35 billion a month.
Global equities declined by -4% over the following
12 months (from the end of January 2018), with the
Eurozone, Japan and emerging markets the key
What could be different this time?
We think the fundamentals are somewhat better this
time around to absorb any tapering shock. The real
yield this time around is even lower at -0.86% vs.
-0.25% back in 2013. Lower yields have driven up
valuation multiples: the 12-month forward P/E is
now much higher than in 2013, while the forward
earnings growth rate is higher. Labor conditions are
also better, with the current US unemployment rate
at 4.6% vs. 7.5% in 2013. Moreover, in the past four
Fed rate-hiking cycles, global equity markets corrected but then recovered with a slightly positive
return over a one-year period. In our view, an equity
correction due to tapering could provide a buying
opportunity for investors.
What tapering could hold in store
for equity investors in 2022
Performance of sectors after 2013 tapering announcement
Comm. services
Real estate
12 M
2013 tapering is as of 22/05/2013,
as per the Fed announcement date.
Last data point 27/09/2021
Source Bloomberg, Refinitiv, Credit Suisse
Main asset classes
USD supported by
rate advantage
TRY, BRL weak spots; RUB strong performer
The outlook for emerging market (EM) FX in 2022 is
less supportive compared to 2021. Concerns about
EM growth moderation related to COVID-19 have
receded, as further lockdowns seem unlikely going
forward given vaccination programs. However, China’s
growth outlook remains a key risk for next year.
EM central banks have been proactive in dealing with
rising inflation in 2021, and monetary policy has
been a supportive buffer for EM FX in general. We
expect that the hiking cycle will, however, slow in
2022 and come to an end in countries that have
front-loaded monetary tightening (e.g. Mexico). While
EM FX carry has risen, it has hovered around the
historical average since 2010. Additionally, EM real
rates will likely struggle to reach positive territory
as inflation across EM continues to rise. In Latin
America and Eastern Europe, Middle East and
Africa (EEMEA), inflationary pressures remain. Support from a dovish Fed is also likely to diminish
next year as we move closer toward US policy rate
normalization. The relative carry advantage is thus
unlikely to increase much further. In light of the shifting Fed stance, differentiation across currencies
will remain key. Even though EM countries are generally in a better position now than they were in
2013 during the “taper tantrum,” some fragile spots
remain. Most EM countries eased fiscal policy to
deal with the COVID-19 crisis, which has led to overall
wider fiscal deficits and higher government debt
across EM. In that regard, Brazil and Turkey stand out
as the weakest spots. On the other hand, currencies with solid fundamentals and high carry should
continue to benefit. Here we especially see the
RUB as a strong performer within EM.
Going into 2022, the currencies that are expected to be in favor are
those that can benefit from their central banks’ gradual move toward
normalization. This transition phase may also prove supportive for
more cyclical currencies, such as commodity currencies.
USD could strengthen against CHF/JPY
The USD will see its fortunes predominantly determined by the US Federal Reserve’s policy normalization
path relative to other economies, and the ongoing
economic recovery at the global and regional level.
Currencies with low yields and subdued inflationary
paths might face headwinds going into 2022. From
this perspective, both the JPY and the CHF might
be vulnerable to declines in 2022. Regarding the CHF,
the Swiss National Bank (SNB) is likely to maintain
its active FX policy in which it intervenes in the FX
market to weaken the CHF if needed. This should
keep a lid on the currency and prevent any sustained
strengthening that would add disinflationary pressure
to a persistently low domestic inflation environment.
EUR initially weak in 2022
With the Fed out front in terms of the tapering (i.e.
reduction) of asset purchases, the EUR might start
2022 rather softly vs. the USD. However, while the
European Central Bank (ECB) has struck a cautious
and patient tone with respect to policy normalization,
inflation should accelerate further going into next
year. This will potentially leave FX markets vulnerable
to an earlier re-pricing of policy normalization. Economic fundamentals remain more solid within the
Eurozone vs. the USA, in particular in terms of external
balances and from a fiscal deficit perspective. Moreover, the prospect of European fiscal integration, supported by Germany’s new governing coalition,
could provide some added impetus for the EUR on a
medium-term basis. A stabilization and recovery in
the EUR could follow later in 2022. But this outcome
depends on how long the Eurozone inflation surge
lasts, as well as the ECB’s ability to bring forward
policy normalization relative to current market
More support for CAD, NOK, NZD
With several central banks entering policy normalization territory in 2022, rotating FX positions during
the year may be important. For example, entering
long currencies (i.e. those that are expected to go
higher) when the central bank outlook becomes more
supportive due to an improved economic outlook.
Higher-beta (i.e. more cyclical) currencies, in particular commodity-related currencies, should do well
within the G10 if, as we anticipate, fundamentals keep
pace and local central bank support remains in
place in early 2022. Commodity currencies have so
far lagged commodity prices and the improvement
in the related terms of trade (the ratio of export prices
vs. import prices). As we move into 2022, however,
it is more likely that both cyclical activity and policy
normalization combine, so that currencies should
re-correlate with an improvement in the terms of trade,
providing support for the CAD, NOK and NZD
specifically. In contrast, the AUD stands out as the
higher-beta currency most at risk due to China’s
slowdown. In summary, we believe valuations and
the FX impact on inflation, as well as financial
conditions, should limit the extent to which currencies can rally in 2022.
Stable or softer CNY
A fairly flat or weaker USD trajectory would be needed
for Asian currencies to broadly remain stable or even
strengthen against the USD. Aside from that, a significant regional issue will be China’s growth outlook,
with a key determinant being the government’s ability
to resolve the recent property sector stress, as well
as the duration of the regulatory regime uncertainty.
We think that the regulatory situation might start to
stabilize in 2022, potentially leading to an improvement
in portfolio flows in the second half of the year.
Overall, the uncertainties mentioned above might
weigh on China’s economic growth so that the
People’s Bank of China (PBoC) might preemptively
allow for a more stable or even softer CNY through
the first half of 2022.
Central bank normalization paths will affect currencies in 2022
Financial asset purchases in % of annualized GDP
March 2021
September 2021
March 2022
* Assumption for the SNB: Foreign currency purchases between 0 and the average
of the purchases estimated for the period between February 2015 and May 2016.
September 2022
Last data point Q3 2021
Source Credit Suisse, Refinitiv Datastream
Main asset classes
Real estate
Exploiting structural
trends in real estate
Listed real estate:
Favorable outlook for the USA and the UK
Within listed real estate, the outlook for the US market
is favorable due to its higher exposure to sectors underpinned by strong structural growth. Similarly, UK
listed real estate should benefit from its exposure to
the logistics segment, which is the highest within
the real estate benchmark. UK real estate companies
should also be lifted by a strong recovery in the
London office market, supported by moderate supply
and improved investor sentiment as the Brexit uncertainty has dissipated. Although the German residential
market (approx. 70% of Eurozone listed real estate)
remains structurally undersupplied, potentially tighter
regulation presents a headwind. Valuation of Swiss
real estate funds is elevated, but the continued low rate
environment and improving momentum in the Swiss
rental apartment market are supportive.
Historically low interest rates and the ongoing economic recovery
should be supportive of real estate investments in 2022. That said,
pandemic-driven structural shifts persist and we continue to favor
sectors underpinned by secular growth drivers, such as logistics
real estate.
With interest rates expected to rise modestly and the
global economic recovery set to continue, the environment remains supportive for real estate investments.
However, the pandemic has accelerated preexisting
structural trends, and we believe that real estate
markets will need to adjust further in 2022 in order
to reflect changing consumer behavior and tenant
needs. Accelerated growth in e-commerce, digitalization and working from home (WFH) should continue
to benefit sectors such as logistics, data centers
and communication towers, while further challenging
Direct real estate: Logistics still favored
Investors have adjusted their preferences to the
post-pandemic world with apartments overtaking
offices, and industrials climbing to new highs in terms
of investment volumes. Going forward, we expect
property values in the retail sector to fall further due
to the growing popularity of e-commerce. The projected economic recovery is generally supportive of the
office sector, but continued WFH discussions will
likely result in a reduction in demand for office space.
However, we believe that such a reduction will be
mostly concentrated in lower quality assets and we
thus prefer good quality and centrally located investments. We also highlight environmental, social and
governance (ESG) credentials, which are increasingly important for tenants and easier to achieve in
newer property investments. The outlook remains
favorable for logistics assets, as e-commerce continues to drive demand for warehouses and distribution centers, as well as residential assets, especially
in regions with low supply and inventory levels.
the outlook for office and retail space. Listed real
estate companies are well positioned for the ongoing market shifts: more than half are exposed to
the aforementioned factors and enjoy strong
underlying growth (e.g. logistics) or sectors that
service basic human needs and thus are less
dependent on the business cycle (e.g. residential
and self-storage). Overall, we expect listed real
estate markets to deliver positive mid-single-digit
returns in 2022.
Apartment and industrial assets increasingly sought-after
Global commercial real estate transactions, sector share as % of total volume
Real estate continues to provide a relatively high yield
Yield in % across different asset classes
in %
Sector share in %
Last data point 30/09/2021
Source RCA, Credit Suisse
MSCI World Real Estate (1-year forward dividend yield)
MSCI World (1-year forward dividend yield)
Barclays Global Aggregate
Direct Real Estate
Last data point 03/11/2021
Source Bloomberg, Datastream, MSCI/IPD, Credit Suisse
Main asset classes
Hedge funds
Yield/income alternatives
with hedge funds
Yield alternatives
Going into 2022, we also see a supportive market
backdrop for strategies that seek to generate income
from alternative assets, such as private infrastructure, real estate and consumer loans. In our view, an
increase in fiscal spending across most developed
countries with a particular focus on reductions in their
carbon footprint should lead to stable market conditions for related infrastructure assets. Additionally,
strong household balance sheets, underpinned by
an above-average savings rate and improving employment levels and wages, should lead to a stable
backdrop for the private real estate and consumer
loan sectors. Thus, private alternative asset strategies offer income-generating opportunities, in particular considering the still historically low levels of
yields offered in public markets. But investors have
to be mindful of issuer and sector concentration
risks in private markets, which can be mitigated by
investing in well-diversified fund solutions.
As tailwinds for cyclical strategies abate, we prefer lower marketbeta hedge fund strategies and yield alternative investments.
We expect modest returns next year that are close to the long-term
average. Due diligence and manager selection are key.
Positive on lower market-beta strategies
A positive economic backdrop, unprecedented levels
of liquidity and regional price dispersion supported
hedge fund (HF) performance (trailing 12-month
ending Q3 2021), with cyclical strategies benefiting
the most. The high single-digit performance was one
of the best since the global financial crisis. While
systemic risks remain moderate, our Trading Conditions Barometer indicates that tailwinds for cyclical
strategies have abated.
Due diligence and manager selection are key
HFs historically tended to outperform equities on
a risk-adjusted basis when our Trading Conditions
Barometer indicated a neutral regime. Active managers typically benefited from exploiting mispricing
opportunities due to bouts of volatility typically associated with the neutral regime. HFs have also managed to limit their volatility to the near mid-single
digits, helping to reduce overall portfolio volatility in
a multi-asset context. Going forward, the investment
environment looks more challenging than in 2021;
we expect an increase in the performance differential
between the best- and worst-performing managers.
We thus continue to highlight the importance of investing with experienced managers, with thorough
due diligence and fund selection processes in place.
We thus expect hedge fund returns to moderate to
near mid-single digits. We also prefer strategies that
are less sensitive to equity and credit beta, such as
opportunistic long/short equity, diversified macro and
corporate arbitrage. Managers of such strategies
should benefit from higher volatility and cross-asset
market movements arising from a potential rise in
long-term yields and the US Federal Reserve’s expected tapering.
Our Trading Conditions Barometer has turned neutral
Scorecard based on Purchasing Managers’ Indices, liquidity conditions, volatility and systemic risks
Risk-adjusted returns* of hedge funds versus equities and bonds
Ratio (returns/volatility)
Favorable market conditions
Neutral market conditions
Adverse market conditions
Credit Suisse Trading Conditions Barometer*
Hedge funds typically outperform safe-haven assets
Conditions supportive of cyclical strategies
Hedge funds typically outperform risky assets
Conditions supportive of defensive strategies
* previously Credit Suisse Hedge Fund Barometer
Last data point 05/11/2021
Source Bloomberg, Datastream, Credit Suisse/IDC
Hedge funds represented by Credit Suisse Hedge Fund Index; global equities by MSCI AC World Index; global bonds
by Bloomberg Barclays Global Aggregate Index (unhedged)
Hedge funds
Global bonds
Global equities
* Next 6M median returns between 1997–2021 divided
by volatility; market regimes defined by the Trading
Conditions Barometer
Last data point 31/10/2021
Source Credit Suisse, Bloomberg
Main asset classes
Private markets
Venture capital
opportunities in finance,
healthcare and education
The backdrop is more challenging
The positive economic backdrop and relatively modest
interest rate rises remain supportive for this asset
class. But higher valuations and record levels of dry
powder have created more challenging investment
conditions, which are likely to persist going forward.
Additionally, the COVID-19 pandemic has exacerbated the consolidation of the industry, with large
funds becoming even bigger and challenging investment conditions for smaller and less established
managers. We thus expect a large divergence
between the top and bottom quartile funds to persist.
In such an environment, we expect private markets
to deliver high but below long-term average returns.
Our projections reflect an average fund performance, but the historically larger gap of about 20%
p.a. between the top- and bottom-performing funds
underscores the importance of fund selection and
due diligence.
The fast pace of innovation, rapid decision-making
and readily available capital make VC funds well
positioned to exploit such long-term trends. We also
highlight the rising importance of the life sciences
sector, also supported by secular growth drivers such
as aging societies and improving affordability in developing nations over the long term. Finally, secondary
managers can help exploit market dislocations amid
bouts of volatility in 2022.
Portfolio approach is key
Private markets cannot be timed but continuous allocation with experienced managers throughout the
cycle forms the basis of a systematic construction of
a resilient portfolio. The core portfolio returns (buyouts, core real assets, senior debt) can be enhanced
by adding higher growth strategies (venture and
growth capital) in order to capture an economic upswing, while market dislocation strategies (secondaries and distressed) should help limit the downside
Opportunities for strategies with limited leverage as the opportunity set for such funds emerges as
In an environment where inflationary pressures and
a result of financial distress (either widespread or
rising long-term benchmark yields pose a risk, we high- localized). Overall, a well-diversified private equity
light strategies with high growth but limited leverage, exposure is required for stabilizing cash flows in order
such as venture capital (VC) and growth capital. The to achieve steady excess returns over public equity.
COVID-19 pandemic has accelerated a shift toward
The importance of diversification, manager selection
technology adoption, thereby creating an unpreceand due diligence should be at the forefront of the
dented pool of opportunities across a spectrum of
investment process after addressing individual client
sectors including finance, healthcare and education.
objectives and requirements.
The economic backdrop remains supportive for private markets, but
investment conditions are more competitive going into 2022. While
we expect private markets to deliver below long-term average returns,
there are still opportunities underpinned by secular growth and
market dislocations. Sound due diligence and portfolio approach are
key factors for success.
Top funds are outperforming their peers by an increasing margin
The performance difference between top and bottom quartile funds
Private markets offer very different return profiles, providing a good basis for a well-diversified exposure
Private markets dispersion of returns*, ranked by median return
% YoY
IRR, p.a
The difference between top and bottom quartile fund
Last data point 31/03/2021
Source Preqin, Credit Suisse
Top quartile range
Bottom quartile range
* Annual net IRRs based on vintage years 2004–2018
** Data used 2008–2018
Last data point 31/12/2018
Source Preqin, Credit Suisse
Main asset classes
Favor cyclicals in
As we head into 2022, the demand environment for commodities
is set to remain supportive given expectations for continued
above-average global industrial production growth and restocking
needs. That said, some moderation is likely.
Commodities performance has been very strong
throughout 2021 amid continued pressure on physical
commodity markets, as reopening demand overwhelmed supply and drove down inventories. As we
head into 2022, the demand environment is set to
remain supportive given expectations for continued
above-average global industrial production growth
and restocking needs. That said, some moderation is
likely and the intensity of growth is set to ease when
services instead of goods drive economic activity. Supply is also catching up in various segments, removing
some pressure on physical markets. In this environment, return prospects should stay positive but spot
contributions may be smaller.
Still a good inflation hedge
In a portfolio context, commodities exposure where
investors have strategic allocations provides diversification and an effective hedge against inflation surprises. However, we would look for more active
curve management as currently backwardated curves
may no longer steepen but instead normalize to
some extent. On the sector and individual market
level, relative value considerations may become
more relevant again, and we would look for yield-enhancing and/or volatility-selling opportunities.
Risk scenarios
Risks and uncertainties are plentiful at any moment,
but top of mind right now are increased tail risks in
Favor cyclicals vs. defensives
power markets, driven by tightness in gas that has
Robust growth and the prospect of gradually less sup- spilled over into related segments. Current supply
portive central bank policy should favor cyclical over
buffers are unusually low across regions, sparking
defensive commodities. Gold could become more vul- fears of insufficient winter supply if there was a
nerable if and when real yields shift upward, reincold spell, prompting markets to price in a significant
forcing our recommendation to look for downside
risk premium. Uncertainty is exceptionally high at
protection – ideally into eventual price bounces. Among the moment. Eventually, the situation should resolve
cyclicals, decarbonization efforts should lift mediumitself, but the fear is that this may not happen before
term demand prospects for base metals, even if we spring arrives. In any case, the energy transition is a
may see tactical swings and periods of surplus dybig challenge (and opportunity) that may bring innamics along the way. We expect oil prices to stay
creased volatility, at least in the first phase. Cooling
supported, as demand has further room to catch
Chinese property markets, which are a major driver
up but supply competition could increase as more
of raw materials demand, constitute a longer-term
non-OPEC volumes return. Hence, spot prices
concern. That said, this risk might be offset by inframay moderate somewhat as 2022 progresses, with
structure investment and demand growth linked to
performance mostly driven by roll yields. Gas and
decarbonization efforts.
power could remain a source of volatility, at least until
we reach the end of winter. In carbon markets, we
see scope for prices to consolidate following the massive gains of late, but the longer-term direction of
travel should stay upward if policymakers were to not
only step up climate ambitions but also move ahead
with implementation.
Carbon prices and the climate
Carbon markets set prices for CO 2 emissions, and
are considered a key tool in combating climate
change. Various regional initiatives are expanding
globally, while the European Union’s Emissions
Trading System (ETS) is the world’s largest and most
liquid cap-and-trade scheme. Policymakers hand
out and auction emission allowances, which are freely
tradable and reduced over time, to participating
firms. Prices are determined by policy (supply side)
and industrial activity, as well as by relative energy
prices (demand side).
The equilibrium is set by the marginal abatement
cost to reduce a ton of carbon. Rising prices incentivize efficiency gains among both producers and
consumers. Investors also play an important role by
providing liquidity, enhancing the effective risk
transfer between market participants and helping
fund research efforts. Carbon exposure is also
increasingly relevant from an environmental, social
and governance (ESG) perspective, as carbon
offsets can be used to address the “E” aspect of
The costs of 1 MT CO2
EUR 5.90
October 2016
EUR 7.37
October 2017
EUR 16.36
October 2018
EUR 25.61
October 2019
EUR 23.71
October 2020
EUR 58.71
October 2021
EUA front-month futures prices
as of end-October for each year
Last data point 29/10/2021
Source Bloomberg, Credit Suisse
Post-COVID era
Supertrends in the
post-COVID era
Thematic funds are a rapidly expanding niche that has evolved in recent
decades from targeted sector and sub-sector investments. The growing
interest in thematic investments perhaps lies in the very nature of the
disruptive times in which we live today: rapid technological advances,
demographics and the climate change challenge are shaking up old
business models and creating new ones. Traditional diversification along
geographies or sectors may not fully capture this transformation. By
diversifying through themes, investors can better capture the long-term
trends that are ushering in change.
Our long-term investment themes, the Supertrends,
cover six key societal developments that we are
convinced will lead to business and investment opportunities. Four years after their initial launch, we have
paired some of our Supertrends subthemes with the
United Nations’ 17 Sustainable Development Goals
(SDGs). We believe that the global coronavirus pandemic has heightened the importance of the SDGs
in that they can serve as a guiding principle for future
economic activity and development, as well as
government cooperation and international relations.
A recent acceleration in global efforts to fight climate
change through sustainability-related infrastructure
investments serves as a good example of how investment opportunities can be paired with the SDGs.
It is important to note that this mapping should be
viewed as a compass rather than a formal guideline,
as there is no universally accepted definition of what
constitutes an SDG-aligned investment.
Higher growth through lower emissions
Political leaders around the world are intensifying their
sustainability focus and taking measures to achieve
ambitious greenhouse gas (GHG) emission targets,
with “net zero” being the new magic number. Our
Climate change and Infrastructure Supertrends are
well positioned to benefit from this political momentum and planned investments over the decades to
come, in our view. The Climate change Supertrend
focuses on the decarbonization of economic activity,
a development that impacts life on land and below
water and contributes to healthy communities. Beyond
electricity generation, transport and energy transition, we believe that the food revolution will not only
make us healthier but will substantially reduce CO2
emissions worldwide. Meanwhile, the Infrastructure
Supertrend’s core themes are energy and water
(infrastructure), but also include the infrastructure
required to facilitate the movement of people and
goods through safe and efficient transportation. The
subthemes in both of these trends are reflected in
some of the UN SDGs, such as industry, innovation
and infrastructure, decent work and economic
growth and responsible consumption and production.
Finding a (better) social balance
The Anxious societies Supertrend addresses better
equality of opportunities, with a focus on the affordability of essential human needs such as housing, education, healthcare and personal security, and the
issue of decent employment amid changing labor markets. During the COVID-19 pandemic, popular frustration continued to center on domestic “pain points.”
Job security due to economic challenges and
changes, the rising cost of education, increasing
healthcare expenses, as well as personal and public
safety are among the top concerns – and priorities –
for many individuals around the globe. We see
interesting investment opportunities in companies
that address these challenges and provide solutions
to lowering the costs of basic services, in other words
employers that have a solid score on the “social”
aspect of environmental, social and governance (ESG)
are also in focus. These topics touch on several UN
SDGs, including decent work and economic growth,
reduced inequalities and sustainable cities and
Living healthier and longer
We expect both the elderly and the younger generations covered in our Silver economy and Millennials
Supertrends, respectively, to continue to drive change
ahead. The aging global population inevitably increases the need for medical solutions for health conditions associated with old age and the related
healthcare costs and coverage, especially as this
trend increasingly impacts emerging markets. In
terms of the younger demographic, Millennials are
pioneering a healthier kind of consumption. After
shaking up shopping and advertising habits, we believe they will next disrupt the finance sector, a focus
this year in our Digital natives subtheme. Sustainability
and responsible consumption should continue to
thrive thanks to the younger generation’s influence.
These subthemes can be linked to several of the UN
SDGs including good health and well-being, gender
equality and decent work and economic growth.
Can’t touch this
Technology is at the heart of many advances toward
the UN SDGs. Indeed, the subthemes in our Technology Supertrend are reflected in many of the SDGs,
ranging from peace, justice and strong institutions
to sustainable cities and communities. We believe that
the next frontier will be the “touchless economy,”
as the removal of physical interaction in human communication, life and work has accelerated dramatically during the COVID-19 pandemic. We expect
that touchless user interfaces and interconnected
multi-devices and applications will increasingly enable
interaction via voice assistants, while biometric
authentication functionality based on voice or image
recognition could provide personalized services for
users at work or at home.
Find out more
Read more
Find out more
Investment strategy 2022
strategies for 2022
Central banks and their assessment of economic conditions will likely be front and center once again in
shaping investment strategies in 2022. As COVID-19
moves from pandemic to endemic, an inflation threat
has superseded the deflation worries that loomed in
the early days of the crisis. Disrupted supply chains
are one contributing factor, and they may remain challenged in coming quarters and keep upward pressure
on consumer prices. Nevertheless, central banks will
likely pursue a slow and gradual normalization of
monetary policies, as they are of the view that the
current spike in inflation should be transitory.
We expect the US Federal Reserve (Fed) to start
hiking rates in late 2022, followed by four additional
hikes in 2023. The Fed’s introduction of a more symmetric inflation targeting approach and the acceptance
of a temporary overshoot provide further support for
a measured path to normalization, which could help
to reduce the pressure from rising public debt burdens
and ultimately contribute to the economic recovery.
Central banks and their assessment
of economic conditions will likely be
front and center once again.
The inflation factor
We forecast global inflation of 3.7% in 2022, with
broad disparity across countries. This scenario implies
that a higher-than-normal cash allocation within
portfolios should be avoided, as purchasing power
could fade quickly. The same applies in general to
nominal assets such as bonds, where a fixed interest
is paid and the invested amount is paid back at face
value at maturity without adjusting for inflation. The
outlook is brighter for those financial assets that
behave positively with rising inflation (i.e. real assets).
Take equities, where the price of a stock reflects
future earnings expectations. Rising inflation stems
from the fact that companies can raise prices for
their products/services, boosting their profitability. Our
global nominal gross domestic product (GDP) growth
forecast (an estimate of real GDP plus inflation) of
8% in 2022 allows for plenty of revenue and earnings growth potential, helping to offset any inflationary
pressure. Nonetheless, rising government bond
yields will likely become a headwind for equity valuations eventually, especially if real yields turn higher
and cross into positive territory again, though we do
not think that this will occur in 2022. Equity sectors
and segments that are aligned with strong structural
growth drivers, including those identified in our Supertrends thematic framework, can help offset the impact
of inflation.
Core bond returns limited
This normalization of monetary policies will kick off
with a gradual reduction of fixed income asset purchases by central banks, which, together with the
broadening economic recovery, should pave the way
for interest rates to grind higher. Rising yields would
negatively impact bond prices, and the current low
income from bonds combined with tight credit spreads
would offer little compensation. Our return expectations for government and corporate bonds is thus
limited. Nevertheless, we believe that there should
be an allocation to core bonds within multi-asset portfolios for risk mitigation purposes (i.e. bonds’ shock
absorbing qualities), though their actual return
contribution may be minimal.
Stay diversified
When approaching portfolio risk management, the
key is to seek out assets with return profiles that
depend on different factors. These diversification
effects can be further improved with investment
strategies that follow non-traditional patterns. For
example, there are hedge fund strategies that
can go both long and short equities to expand their
opportunity set. Finding investment strategies to
compensate for low investment income from bonds
is a difficult task. Dividend-focused equity strategies, with an emphasis on companies with sound
balance sheets and strong cash flow production,
or return-enhancing equity option strategies can be
interesting alternatives, as are non-core bonds if
widening spreads were to offer an opportunity. Real
estate is another approach, as the ongoing economic
recovery is supportive. Private equity also offers an
opportunity to boost a portfolio’s return profile amid
ongoing market dislocations and the continuing
economic recovery. However, private equity is only
suitable for those investors who can tolerate greater
illiquidity than with traditional investments.
Investment strategy 2022
We expect the global economy to grow by 4.3% in real terms in 2022.
This is less than the 5.8% we expect for 2021 but higher than the growth
rate before the pandemic. In equities, we expect high single-digit returns
in 2022 compared to double-digit returns in 2021. Government bond yields
will likely move higher on the back of economic growth momentum and
policy normalization in 2022.
Forecasts for growth and inflation
Financial market performance/forecasts
Real GDP (y/y %)
Inflation (annual avg. y/y %)
United States
United States
United Kingdom
United Kingdom
India (fiscal year)
India (fiscal year)
* E: estimate
2021 YTD
performance on
15 November 2021
2022 expected
total returns
US equities
EMU equities
Swiss equities
UK equities
Japanese equities
Emerging market equities
2021 YTD
performance on
15 November 2021
2022 expected
total returns
Global investment grade bonds**
Global high yield bonds**
Emerging market HC bonds***
Close on
15 November 2021
Currencies &
Close on
15 November 2021
10-year German Bund yield
10-year Swiss Eidgenossen yield
Gold (USD/oz)
WTI (USD/bbl)
Bond yields
10-year US Treasury yield
*Performance and expected returns are total return including dividends. Markets refer to MSCI country / regional indices in local currency. Performance of the periods.
12/11/2016 – 12/11/2021 for those indices in chronological order are: MSCI USA: 21.8%, 7.4%, 15.9%, 18.5%, 34.7%. MSCI EMU: 24.2%, -6.9%, 17.1%, -4.0%,
30.1%. MSCI Switzerland: 20.5%, 1.9%, 19.1%, 4.0%, 23.5%. MSCI UK: 14.5%, -1.0%, 8.6%, -12.5%, 20.7%. MSCI Japan: 31.6%, -4.6%, 6.1%, 4.3%, 22.2%.
MSCI EM: 32.3%, -8.6%, 12.8%, 16.0%, 11.8%.
**Barclays Global Investment Grade Corporate and Global High Yield index
*** JP Morgan EMBIG Div. (sovereign index)
Last data point 15/11/2021
Source Thomson Reuters Datastream, Haver Analytics, Credit Suisse
Last data point 15/11/2021
Source Bloomberg, Datastream, Credit Suisse
Note: Historical and/or projected performance indications and financial market scenarios are not reliable indicators
of current or future performance.
Note: Historical and/or projected performance indications and financial market scenarios are not reliable indicators
of current or future performance.
Important Information
This report represents the views of the Investment Strategy Department of CS and has not been
prepared in accordance with the legal requirements designed to promote the independence of
investment research. It is not a product of the Credit Suisse Research Department even if it
references published research recommendations. CS has policies in place to manage conflicts of interest including policies relating to dealing ahead of the dissemination of investment research. These
policies do not apply to the views of Investment Strategists contained in this report.
Risk Warning
Every investment involves risk, especially with regard to fluctuations in value and return. If
an investment is denominated in a currency other than your base currency, changes in the
rate of exchange may have an adverse effect on value, price or income.
This document may include information on investments that involve special risks. You should seek the
advice of your independent financial advisor prior to taking any investment decisions based on this
document or for any necessary explanation of its contents. Further information is also available in the
information brochure “Risks Involved in Trading Financial Instruments” available from the Swiss
Bankers Association.
Past performance is not an indicator of future performance. Performance can be affected by
commissions, fees or other charges as well as exchange rate fluctuations.
Financial market risks
Historical returns and financial market scenarios are no reliable indicators of future performance. The
price and value of investments mentioned and any income that might accrue could fall or rise or
fluctuate. You should consult with such advisor(s) as you consider necessary to assist you in making
these determinations.
Investments may have no public market or only a restricted secondary market. Where a secondary
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whether such market will be liquid or illiquid.
Emerging markets
Where this document relates to emerging markets, you should be aware that there are uncertainties
and risks associated with investments and transactions in various types of investments of, or related
or linked to, issuers and obligors incorporated, based or principally engaged in business in emerging
markets countries. Investments related to emerging markets countries may be considered speculative,
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Investments in emerging markets investments should be made only by sophisticated investors or
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consider and weigh the various risks presented by such investments, and have the financial resources
necessary to bear the substantial risk of loss of investment in such investments. It is your
responsibility to manage the risks which arise as a result of investing in emerging markets investments
and the allocation of assets in your portfolio. You should seek advice from your own advisers with
regard to the various risks and factors to be considered when investing in an emerging markets
Alternative investments
Hedge funds are not subject to the numerous investor protection regulations that apply to regulated
authorized collective investments and hedge fund managers are largely unregulated. Hedge funds are
not limited to any particular investment discipline or trading strategy, and seek to profit in all kinds of
markets by using leverage, derivatives, and complex speculative investment strategies that may
increase the risk of investment loss.
Commodity transactions carry a high degree of risk, including the loss of the entire investment, and
may not be suitable for many private investors. The performance of such investments depends on
unpredictable factors such as natural catastrophes, climate influences, hauling capacities, political
unrest, seasonal fluctuations and strong influences of rolling-forward, particularly in futures and
Investors in real estate are exposed to liquidity, foreign currency and other risks, including cyclical
risk, rental and local market risk as well as
environmental risk, and changes to the legal situation.
Private Equity
Private Equity (hereafter “PE”) means private equity capital investment in companies that are not
traded publicly (i.e. are not listed on a stock exchange), they are complex, usually illiquid and
long-lasting. Investments in a PE fund generally involve a significant degree of financial and/or
business risk. Investments in PEfunds are not principal-protected nor guaranteed. Investors will be
required to meet capital calls of investments over an extended period of time. Failure to do so may
traditionally result in the forfeiture of a portion or the entirety of the capital account, forego any future
income or gains on investments made prior to such default and among other things, lose any rights to
participate in future investments or forced to sell their investments at a very low price, much lower
than secondary market valuations. Companies or funds may be highly leveraged and therefore may be
more sensitive to adverse business and/or financial developments or economic factors. Such
investments may face intense competition, changing business or economic conditions or other
developments that may adversely affect their performance.
Interest rate and credit risks
The retention of value of a bond is dependent on the creditworthiness of the Issuer and/or Guarantor
(as applicable), which may change over the term of the bond. In the event of default by the Issuer and/
or Guarantor of the bond, the bond or any income derived from it is not guaranteed and you may get
back none of, or less than, what was originally invested.
Investment Strategy Department
Investment Strategists are responsible for multi-asset class strategy formation and subsequent
implementation in CS’s discretionary and advisory businesses. If shown, Model Portfolios are provided
for illustrative purposes only. Your asset allocation, portfolio weightings and performance may look
significantly different based on your particular circumstances and risk tolerance. Opinions and views
of Investment Strategists may be different from those expressed by other Departments at CS.
Investment Strategist views may change at any time without notice and with no obligation to update.
CS is under no obligation to ensure that such updates are brought to your attention.
From time to time, Investment Strategists may reference previously published Research articles,
including recommendations and rating changes collated in the form of lists. The recommendations
contained herein are extracts and/or references to previously published recommendations by Credit
Suisse Research. For equities, this relates to the respective Company Note or Company Summary of
the issuer. Recommendations for bonds can be found within the respective Research Alert (bonds)
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Authors / Contributors
Editorial deadline
Philipp Lisibach
Head of Global Investment Strategy
15 November 2021
Managing editor
LINE Communications AG
Nannette Hechler-Fayd’herbe
Global Head of Economics & Research and CIO IWM
Editorial support
Catherine McLean Trachsler
Christa Jenni
Christine Mumenthaler
Flurina Krähenbühl
Credit Suisse Language & Translation Services
More information
Project management
Camilla Damm Leuzinger
Claudia Biri
Serhat Günes
Photo sources
nadla/GettyImages (cover, p. 1, p. 2, p. 16–17, p. 68);
Credit Suisse (p. 7, p. 9);
Roberto Moiola/Sysaworld/GettyImages (p. 14–15);
Mlenny/GettyImages (p. 30–31);
Paul Souders/GettyImages (p. 58–59);
the_burtons/GettyImages (p. 60)
James Sweeney
Global Economics & RCIO Americas
Karsten Linowsky
Head of Global Currency Strategy
Neville Hill
Head of European Economics
Claude Maurer
Chief Economist Switzerland
Daniel Rupli
Head of Single Security Research, Equity Credit
Anand Datar
Alternative Investments Strategist
David Sneddon
Head of Global Technical Analysis
Sarah Leissner
Alternative Investments Strategist
Tobias Merath
Head of Wealth Content Strategy
Rasmus Rousing
Equity Strategist
Luca Bindelli
Head of Global FI, FX and Commodity Strategy
Laura Smith
Equity Strategist
Marc Häfliger
Head of Global Equity Strategy
Sunny Chabriya
Equity Strategist
David Wang
Head of China Economics
Satish Aluri
Equity Strategist
Jelena Kucenko
Head of Global Alternative Investments Strategy
Florence Hartmann
Emerging Market Bonds & FX Strategist
Jessie Gisiger
Head of Global Credit Strategy and Investment Themes
Angela Saxby Robbins
Senior Sustainable Investing Specialist
Stefan Graber
Head of Global Commodity Strategy
Nicole Neghaiwi
Sustainable Investing Specialist
2532374 072028E LJCC 11.2021